Wednesday, August 29, 2012

It was 1993, during congressional debate over the North American Free Trade Agreement. I was having lunch with a staffer for one of the rare Republican congressmen who opposed the policy of so-called free trade. To this day, I remember something my colleague said: “The rich elites of this country have far more in common with their counterparts in London, Paris, and Tokyo than with their fellow American citizens.”

That was only the beginning of the period when the realities of outsourced manufacturing, financialization of the economy, and growing income disparity started to seep into the public consciousness, so at the time it seemed like a striking and novel statement.

At the end of the Cold War many writers predicted the decline of the traditional nation-state. Some looked at the demise of the Soviet Union and foresaw the territorial state breaking up into statelets of different ethnic, religious, or economic compositions. This happened in the Balkans, the former Czechoslovakia, and Sudan. Others predicted a weakening of the state due to the rise of Fourth Generation warfare and the inability of national armies to adapt to it. The quagmires of Iraq and Afghanistan lend credence to that theory. There have been numerous books about globalization and how it would eliminate borders. But I am unaware of a well-developed theory from that time about how the super-rich and the corporations they run would secede from the nation state.

I do not mean secession by physical withdrawal from the territory of the state, although that happens from time to time—for example, Erik Prince, who was born into a fortune, is related to the even bigger Amway fortune, and made yet another fortune as CEO of the mercenary-for-hire firm Blackwater, moved his company (renamed Xe) to the United Arab Emirates in 2011. What I mean by secession is a withdrawal into enclaves, an internal immigration, whereby the rich disconnect themselves from the civic life of the nation and from any concern about its well being except as a place to extract loot.

Our plutocracy now lives like the British in colonial India: in the place and ruling it, but not of it. If one can afford private security, public safety is of no concern; if one owns a Gulfstream jet, crumbling bridges cause less apprehension—and viable public transportation doesn’t even show up on the radar screen. With private doctors on call and a chartered plane to get to the Mayo Clinic, why worry about Medicare?

The nation state is dead. Corporations rule the world. The international corporate elite will hollow out America and take their money elsewhere when it suits them, even if they continue to live here in ever more desperate gated insularity. Know who your friends are. Join a resilient community. Your government may abandon you.

Social justice produces the most social welfare. Watch this video (below) until it sinks in. The false god of Econ is pushing the world toward collapse, war and neo-feudalism.

Via: rithotz.com On a similar note, Barry says, “The Left Right Paradigm is Over: Its [sic] You vs Corporations”.

Every generation or so, a major secular shift takes place that shakes up the existing paradigm. It happens in industry, finance, literature, sports, manufacturing, technology, entertainment, travel, communication, etc.

I would like to discuss the paradigm shift that is occurring in politics.

For a long time, American politics has been defined by a Left/Right dynamic. It was Liberals versus Conservatives on a variety of issues. Pro-Life versus Pro-Choice, Tax Cuts vs. More Spending, Pro-War vs Peaceniks, Environmental Protections vs. Economic Growth, Pro-Union vs. Union-Free, Gay Marriage vs. Family Values, School Choice vs. Public Schools, Regulation vs. Free Markets.

The new dynamic, however, has moved past the old Left Right paradigm. We now live in an era defined by increasing Corporate influence and authority over the individual. These two “interest groups” – I can barely suppress snorting derisively over that phrase – have been on a headlong collision course for decades, which came to a head with the financial collapse and bailouts. Where there is massive concentrations of wealth and influence, there will be abuse of power. The Individual has been supplanted in the political process nearly entirely by corporate money, legislative influence, campaign contributions, even free speech rights.

This may not be a brilliant insight, but it is surely an overlooked one. It is now an Individual vs. Corporate debate – and the Humans are losing.

Consider:

• Many of the regulations that govern energy and banking sector were written by Corporations;

• The biggest influence on legislative votes is often Corporate Lobbying;

• Corporate ability to extend copyright far beyond what original protections amounts to a taking of public works for private corporate usage;

• PAC and campaign finance by Corporations has supplanted individual donations to elections;

• The individuals’ right to seek redress in court has been under attack for decades, limiting their options.

• DRM and content protection undercuts the individual’s ability to use purchased content as they see fit;

• The Supreme Court has ruled that Corporations have Free Speech rights equivalent to people; (So much for original intent!)

None of these are Democrat/Republican conflicts, but rather, are corporate vs. individual issues.

For those of you who are stuck in the old Left/Right debate, you are missing the bigger picture. Consider this about the Bailouts: It was a right-winger who bailed out all of the big banks, Fannie Mae, and AIG in the first place; then his left winger successor continued to pour more money into the fire pit.

What difference did the Left/Right dynamic make? Almost none whatsoever.

How about government spending? The past two presidents are regarded as representative of the Left Right paradigm – yet they each spent excessively, sponsored unfunded tax cuts, plowed money into military adventures and ran enormous deficits. Does Left Right really make a difference when it comes to deficits and fiscal responsibility? (Apparently not).

What does it mean when we can no longer distinguish between the actions of the left and the right? If that dynamic no longer accurately distinguishes what occurs, why are so many of our policy debates framed in Left/Right terms?

In many ways, American society is increasingly less married to this dynamic: Party Affiliation continues to fall, approval of Congress is at record lows, and voter participation hovers at very low rates.

There is some pushback already taking place against the concentration of corporate power: Mainstream corporate media has been increasingly replaced with user created content – YouTube and Blogs are increasingly important to news consumers (especially younger users). Independent voters are an increasingly larger share of the US electorate. And I suspect that much of the pushback against the Elizabeth Warren’s concept of a Financial Consumer Protection Agency plays directly into this Corporate vs. Individual fight.

But the battle lines between the two groups have barely been drawn. I expect this fight will define American politics over the next decade.

This short commentary was conceived not to be an exhaustive research, but rather, to stimulate debate. There are many more examples and discussions we can have about this, and I hope readers do so in comments.

But my bottom line is this: If you see the world in terms of Left & Right, you really aren’t seeing the world at all . . .

Friday, August 24, 2012

Unlike most studies, which are based on total returns, Santa-Clara and Valkanov based their efforts on the average excess return of the indexes over the return of the three-month Treasury bill. The results were striking. When a Republican president held office, the value-weighted return delivered nearly a 2% premium over the T-bill. When a Democrat held office, the premium was nearly 11%. While the 9% difference clearly favors the Democrats, the results from the equal-weighted portfolio were even more telling, with a 16%+ result in favor of the Democrats. (To learn more about T-bills and other government securities, read 20 Investments You Should Know: Treasuries.)

If America lurches right, whether out of disappointment with the Obama economy or with Obama himself, there will be weeping and gnashing of teeth among the 99 percent, and social stresses will be pushed even further. If the response is totalitarian, America will become the land of the most definitely un-free. And the blowback will intensify. These social dynamics are pretty well understood.

If the ruling class would adopt the position that, “From those to whom much has been given, much shall be expected,” an incrementalist solution might be possible. But as Strauss and Howe maintain, the Crisis turning is all about revolution (one hopes a non-violent one), not about incremental progress. This is Obama’s great failing: that he was presented with an historical moment that would have welcomed revolutionary change, and he elected (or perhaps was constrained to) support the status quo in every regard but trying to get a Republican-inspired health plan passed.

Wednesday, August 22, 2012

If the labour market stick has cracked, the carrot is decaying. The key challenge is low-skilled men, many of whom are not married. But America’s negative income tax is overwhelmingly targeted at parents. The US has spent a generation boosting incentives for high-skilled workers by cutting top marginal tax rates. But payroll taxes have been allowed to take a rising share of low earners’ incomes.

How many times have you heard the outright lie that half of the American workforce doesn’t pay any income taxes? The payroll tax is an income tax. Article is here.

Friday, August 17, 2012

Barry Ritholtz is back from Europe, noting the relatively low stress levels among Europeans, who trust their social safety nets to get them through the European crisis (link).

After being exposed to Wilkinson’s research (here), I believe that the false god of Econ is not just completely wrong but actively evil in the ideas it promotes regarding social welfare.

The message of Wilkinson is that social justice creates the best social welfare outcomes, where social justice is prima facie defined as a much more egalitarian (but hardly “Rawlsian”) distribution of income and wealth than the US currently suffers. And where the measures of social welfare are epidemiological, health-related measures, not phony economic aggregates like Gross Domestic Product. Like, how well people are actually doing.

So in spite of the common view that Europe is doomed and America is still exceptional, I believe there’s a good chance Europe will do better in terms of human welfare in weathering the crisis than America will.

If America lurches to the right and the Republicans are able send America into a neo-feudal state, dividing the population into the ultra-rich and serfs (I say this with little exaggeration; see Barry’s comments on social classes in the link above), the weeping and gnashing of teeth will hardly produce beneficial economic results, except for those who have no national allegiance, namely the international money elite who are behind the Republican thrust.

Will the stress that a Romney victory would impose on America spark creativity or cruelty? Romney’s vision has no place for social justice. It is Social Darwinism in its rawest form. There is a huge literature showing that stress actually has very adverse effects on the human mind and spirit (link).

Friday, August 10, 2012

It amazes me that most Americans don’t seem to know this. Romneycare has resulted in coverage of 98 percent of the citizens of Massachusetts. Only about one percent of small businesses opt out. The idea that it’s a states rights thing has been blown away by the Supremes. That Mitt is running against his own successful health care plan is proof of the moral and intellectual bankruptcy of the Republican platform. The Republican party stands for nothing other than keeping taxes low on rich people.

Romneycare and Obamacare Differ Only in Inconsequential Ways

Romney is struggling to distance himself from the health-care law he passed while governor of Massachusetts, and no wonder—the state and federal plans are virtually identical.No other issue--not his wealth, his 15 percent tax rate, or “corporations are people, my friends”--has given Mitt Romney as much trouble as the health care law he passed while governor of Massachusetts. Each of Romney’s opponents has taken a shot at the law Tim Pawlenty dubbed Obamneycare, pointing out again and again that it was the inspiration for President Obama’s reform so loathed by the Republican base. At a town hall rally in Ohio Monday, a Romney supporter pleaded for the candidate to give her something to say to critics. "I understand that Romneycare was good for Massachusetts at the state level, whereas Obamacare is federally mandated," she said. But "I don't know what the fundamental differences between the two [are] and I really would like your assistance with being able to tell others." [article continues here]

Tuesday, August 7, 2012

There are some interesting articles on what’s going on in the emerging currency war, as the US struggles to continue to exploit its reserve currency status (and we really want to inflate and devalue, to boost exports don’t we? All the talk of strong dollar is just talk, isn’t it?). I am including a link to Ben Fulford’s update, though I can’t figure out if he is just a loony telling tales or has some inside knowledge of what’s going on in Asia. Certainly the American MSM keep us as wool-blind as they can.

Monday, August 6, 2012

The theory of confidence that I adhere to says that it is the relationship between the U-3 unemployment rate and its exponential moving average over the past several years that determines the level of confidence (for many practical purposes, such as the timing of recessions):

A = – (U – UMEAN)/Stdev(U) .

Shown below are recent actual values of unemployment and the adaptation level and my judgmental forecast:

I continue to believe that confidence will collapse in mid-2013. Whether the “recession” is declared to begin then or now or somewhere in between is up to the NBER in its ex poste facto wisdom.

Here is what “animal spirits” look like according to the forecast:

Green is the Michigan consumer sentiment series. If the BLS manages to keep reported U-3 unemployment below about 8.8 percent until the election, confidence will remain “positive,” and, other things equal, the President has some chance of reelection. If unemployment rises above 8.8 percent in the next year, confidence will collapse.

The situation continues to resemble 1972-1973 in the relative configurations of the Michigan measure (depressed but trying to rise) and the A metric (positive, but poised to fall). By all accounts the current cyclical expansion is the weakest in the postwar period, so a short-lived and fey recovery is to be expected.

Friday, August 3, 2012

Sometimes, history really does seem to repeat itself. After the US Civil War, for example, a wave of urban violence fuelled by ethnic and class resentment swept across the country, peaking in about 1870. Internal strife spiked again in around 1920, when race riots, workers' strikes and a surge of anti-Communist feeling led many people to think that revolution was imminent. And in around 1970, unrest crested once more, with violent student demonstrations, political assassinations, riots and terrorism (see 'Cycles of violence'). […]

Big picture empirical support for Strauss and Howe’s prophetic narrative of a crisis peak in about ten years. Continues here.

Negative rates as a precursor to the death of banking

What we believe is that rather than stimulating the lending market — and the economy along with it — such a rate policy could have a disastrous impact on collateral markets and money market funds, not to mention the net interest income of lending institutions. All of which could unleash a protracted deflationary spiral.

The move could also presage the death of banks and lending institutions completely. […]

Check out the pictures of some major yield curves around the world:

UK:

Australia:

Switzerland:

If you buy the argument that central banks this far gone down the path of excessive accommodation lo this past forty years have only one option left to serve their masters, the fiscal authorities and the creditors, inflate or die, then keep in mind that historically, the quickest way to get an inflation going is to start a big war.

I am beginning to see why Charles Nenner says there is no free will—yet I retain hope that there is.